As a business owner selling taxable goods or services, you act as an agent of the state of Illinois by collecting tax from purchasers and passing it along to the appropriate tax authority. Sales and use tax in Illinois is administered by the Illinois Department of Revenue (DOR).
Any sales tax collected from customers belongs to the state of Illinois, not you. It’s your responsibility to manage the taxes you collect to remain in compliance with state and local laws. Failure to do so can lead to penalties and interest charges.
In Illinois, sales tax is levied on the sale of tangible goods and some services. The tax is collected by the seller and remitted to state tax authorities. The seller acts as a de facto tax collector.
To help you determine whether you need to collect sales tax in Illinois, start by answering these three questions:
If the answer to all three questions is yes, then you’re required to register with the state tax authority, collect the correct amount of sales tax per sale, file returns, and remit to the state.
If you meet the criteria for collecting sales tax and choose not to collect sales tax, you’ll be held responsible for the tax due, plus applicable penalties and interest .
It’s extremely important to set up tax collection at the point of sale — it’s near impossible to collect sales tax from customers after a transaction is complete.
Sales tax nexus in all states used to be limited to physical presence: A state could require a business to collect and remit sales tax only if it had a physical presence in the state, such as employees or an office, retail store, or warehouse.
In June 2018, the Supreme Court of the United States overruled the physical presence rule with its decision in South Dakota v. Wayfair, Inc. States are now free to tax businesses based on their economic and virtual connections to the state, or economic nexus.
While physical presence still triggers a sales tax collection obligation in Illinois, it’s now possible for out-of-state sellers to have sales tax nexus with Illinois.
Out-of-state sellers with no physical presence in Illinois can establish sales tax nexus in the following ways:
Affiliate nexus: Having ties to businesses or affiliates in Illinois. This includes, but isn’t limited to, the design and development of tangible personal property (goods) sold by the remote retailer, or solicitation of sales of goods on behalf of the retailer. Affiliate nexus can also be established if:
Click-through nexus: Having an agreement to reward a person(s) in the state for directly or indirectly referring potential purchasers of goods through an internet link, website, or otherwise, and having cumulative gross receipts from sales of tangible personal property by the retailer to customers referred by all persons in Illinois that exceed $10,000 during the preceding four quarterly periods.
Economic nexus: Having a certain amount of economic activity in the state. For sales made on and after October 1, 2018, a remote seller must register with the state then collect and remit Illinois sales tax if the remote seller meets either of the following criteria (the economic thresholds):
Trade shows: Attending conventions or trade shows in Illinois. You may be liable for collecting and remitting Illinois use tax on orders taken or sales made during Illinois conventions or trade shows. However, you generally would not have nexus if all the following are true:
If you have sales tax nexus in Illinois, you’re required to register with the Illinois Department of Revenue and to charge, collect, and remit the appropriate tax to the state.
Sales tax nexus can linger even after a retailer ceases the activities that caused it to be “engaged in business” in the state. This is known as trailing nexus. As of April 2019, Illinois does not have an explicitly defined trailing nexus policy.
If you’re an active Amazon seller and you use Fulfillment by Amazon (FBA), you need to know where your inventory is stored and if its presence in a state will trigger nexus. FBA sellers can also download an Inventory Event Detail Report from Amazon Seller Central to identify inventory stored in Illinois.
If you sell taxable goods to Illinois residents and have inventory stored in the state, you may have nexus and an obligation to collect and remit tax. To begin to understand your unique nexus obligations, check out our free economic nexus tool or consult with a trusted tax advisor.
In some states, sales tax rates, rules, and regulations are based on the location of the seller and the origin of the sale (origin-based sourcing). In others, sales tax is based on the location of the buyer and the destination of the sale (destination-based sourcing).
Illinois generally uses destination-based sourcing. This means you’re responsible for applying the sales tax rate determined by the ship-to address on all taxable sales.
For additional information, see the Illinois Department of Revenue.